Railroad cost of capital decreases

Monday, August 05, 2013

The U.S. Surface Transportation Board has found that the railroad industry’s cost of capital in 2012 stood at 11.11 percent, a decrease from 2011’s total of 11.57 percent.
The cost of capital had been rising in recent years, inching up from 10.43 percent in 2009 and 11.03 percent in 2010.
The agency calculates the railroad’s cost of capital to see how much return investors would need to experience for railroad investment to seem like a good value.
“The cost-of-capital figure, which is calculated each year, is an essential component of many of the agency’s core regulatory responsibilities,” STB wrote in its decision.
The board put out a notice in the Federal Register in March asking for comments on the cost of debt capital, preferred equity capital and common equity capital. It also wanted to know about the industry’s capital structure mix. In 2012, long-term debt cost 3.29 percent, and common equity cost 13.4 percent. Long-term debt dominated the capital structure mix at 77.38 percent, with 22.62 percent coming in the form of long-term debt.
Data from the Association of American Railroads assisted STB in its calculations. - Jon Ross